EU Takes Legal Action Against Portugal, Two Others on Tax Deals

Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.

By Joe Kirwin

The European Commission launched legal proceedings against Portugal, Bulgaria, and Cyprus for not adopting, in their national laws, European Union legislation requiring all EU countries to exchange tax rulings granted to multilateral companies.

The legislation was adopted in the wake of the 2014 LuxLeaks scandal that revealed more than 100 individualized tax rulings the Luxembourg government secretly signed with multinational companies such as McDonald’s Corp. and Amazon.com Inc. The measure (EEC/2015/2376) was required to be on the books of each EU country by the end of 2016; the first exchange among EU country tax authorities is due to take place in September.

“The new rules are designed to help clamp down on cross-border tax avoidance, aggressive tax planning and harmful tax competition,” the commission said in a July 13 statement announcing the launch of legal proceedings against the three countries.

Bulgaria, Cyprus, and Portugal now have two months to reply to the European Commission. If the three countries don’t respond, the commission has the authority to bring a member nation before the European Court of Justice. EU law requires the commission to issue two legal warnings before it can file a charge in the court.

Bulgarian Response

Bulgarian spokeswoman Genoveva Chervenakova said July 17 that the Bulgarian draft national legislation to adopt the EU directive was published and sent to the Bulgarian parliament last December. She added that the resignation of the Bulgarian government at the beginning of 2017, as well as subsequent elections, meant the process had to start again from the beginning.

Final adoption “should take place by the end of July,” Chervenakova told Bloomberg BNA in an email.

Officials from the Cypriot and Portuguese governments didn’t respond to requests for comment.

The European Commission also announced that the Czech Republic, Greece, Hungary, and Poland adopted legislation to incorporate the directive into their national laws following a legal warning. Meanwhile, the EU executive body said it will “assess whether the legislation of all member states complies with all requirements of the new rules.”

Aside from the legal scrutiny over the tax ruling legislation, European Commission competition officials are investigating more than 100 tax rulings that Luxembourg and other governments have forged with multinational companies to determine whether they violate EU rules against providing government aid to selected taxpayers.

The European Commission has already taken action against Ireland, forcing it to retrieve approximately $14.5 billion from Apple Inc. in back taxes because the EU’s competition authority said a tax ruling between the company and Ireland signed in the 1990s violated EU state aid rules. A similar illegal state aid decision was taken against the Netherlands concerning a tax ruling it signed with Starbucks Corp. Both Ireland and the Netherlands have appealed the commission’s decisions.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax